The long decline in New Haven stock was clearly not due to stock market manipulation. It may have been due to manipulation of the property by so-called "insiders," or it may not; that is not the question for us to settle. But cer tainly it is admitted that confidence in the property was for a time at a low ebb, and that is the reason the price of the stock declined. Exactly the same is true, in a greater de gree even, of Rock Island, Missouri Pacific, and St. Louis and San Francisco, and to a less degree of Baltimore and Ohio, where the gradually realized fact that a bad invest ment had been made in the Cincinnati, Hamilton and Dayton property, together with the enormous distribution of Bal timore and Ohio stock by the Union Pacific, has forced the price down. On the other hand the tremendous speculation in such stocks as Lehigh Valley, Union Pacific, and Reading were largely due to knowledge, later transmuted into extra dividends, of the riches of these companies. Much has been made of Reading, but why should not the stock have been active when everyone with any familiarity with such mat ters knew perfectly well that some day the company would probably distribute a great extra dividend in the form of its coal lands (it owns 40 per cent of the country's anthracite coal) either voluntarily or because forced by the govern ment? Indeed I imagine that the very year in which Read ing's stock was dealt in forty times over was just before the regular cash dividend was largely increased. Why should there not be active speculation in a stock of this character? Certainly if speculation was ever warranted, it was in this case; and the same remark applies to Lehigh Valley and Union Pacific, in both of which the big burst of speculation took place shortly before big extra dividends were paid.
It is largely in these stocks that the great, fundamental price changes have occurred, and I submit that heavy specu lation was warranted by facts. During the last year or two I have answered for various periodicals, perhaps a thou sand letters from investors. And I can assert that specula tion on the Stock Exchange seems small to me as compared with that in other fields.
3. Kinds of manipulation.—But it must not be sup posed that manipulation is an unimportant subject. It includes under its broad meaning all intentional corners, a description of which will be given in the next chapter, and many other forms of speculative excess and abuse which we shall now discuss.
4. Extreme or excessive speculation.—When spec ulation runs to excess it is often incorrectly termed manipulation. The fact that certain stocks are dealt in more than they are transferred on the companies' books is taken as proof that manipulation exists. Such is far from being the case. Professional traders buy and sell "in and out" several times a day, and handle stock much as they would a ten dollar bill. Their intent may be that of a gambler, but that is quite a different matter.
5. Rumors.—The spreading of false rumors is often described as manipulation, and it is that, most cer tainly. The whole subject of the effect of rumors upon stock prices is intensely interesting and impor tant. There have been countless instances where ,false
rumors or those with only a grain of truth in them have affected prices. Over the circulation of such rumors exchanges naturally have no authority, except in the most obvious and flagrant cases. Speculators go to extremes, discard all sense, judgment and reflec tion and impetuously rush to ruin upon the circula tion of any plausible whisper.
Often the spreader of rumors intends to deceive. State laws forbid the circulation of untruths, with the avowed intention of iniurina property. But tho it is a penal offense, conviction is most rare and diffi cult, except possibly where the standing of banks is affected.
6. Pools.—A pool is formed by a number of persons uniting or joining their interests for the purpose of buying or selling and thus increasing or depressing the of one or more securities, or commodities. The members of the pool divide the loss or profit. Often the word is used in much the same sense as syndicate. The word "clique" has also' much the same significance. A pool in and of itself is simply a joint venture of various individuals man aged by some individual or firm selected for that pur pose. This individual or firm is given the sole author ity to direct the buying and selling for the persons in the pools. The practice is of course perfectly proper and is open to criticism only when the methods em ployed are questionable.
A member of a pool is naturally prohibited from selling. or buying for his own account any shares of the stock in question as long as the pool is in existence, and any attempts to evade this rule often result in the collapse of pools and frequently in litigation.
7. Directors' and officers' manipulations.—The stock exchange is most active in requiring publicity as regards the declaration of dividends, new stock is sues, bond issues, etc. But it cannot prevent directors and officers of corporations from declaring larger or smaller dividends than conditions warrant or in other wise abusing their trust. In other words there is nothing, and there can be nothing provided in the machinery of the exchanges to prevent corporate abuses and misuse of trust. The destiny of the cor poration lies in the hands of its directors who may or may not declare dividends and who may to destroy the value of the company. They may, if un mindful of their trust, secure control of the company by forcing the stock down in an indirect way and buying the securities at a low price. An unscrupulous director, too, will take advantage of his "inside" knowl edge and his resulting stock market operations may be included in the term "manipulation." Should directors take stock market advantages of their knowledge of perfectly proper corporate trans actions prior to the rest of the stockholders? Some hold that a director acts in trust for stockholders and should take no advantage, even when the results are harmless from the stockholders' viewpoint. Others say that a director is but poorly rewarded at best and could not afford the time and trouble if he had no pecuniary advantages.